Green Watch – Future Lookout on 2020 Sulphur Cap

GREEN4SEA features this special column to include expert perspectives on topical environmental issues concerning the shipping industry. The 0.5% sulphur cap is about to become effective globally in less than two years from now, therefore operators need to consider the available options for compliance. This time, we have asked global experts to provide feedback on the following question:

“Given the uncertainty surrounding the implementation of 2020 global sulphur cap, which fuel option (distillates, scrubbers, LNG, other) you think will be chosen by the majority of the ship operators and why?”

Dragos Rauta, Technical Director, Intertanko

All measures at hand are very expensive. If I were a shipowner, my initial, short term choice would be MGO/ULSFO. Scrubbers cost as much as main engines! Unless better freight rates and longer t/c are provided to tankers, the payback for scrubbers is longer than advertised. MGO/ULSFO are also expensive but the cost is compensated significantly by lesser maintenance & repair costs, less engineering manpower and no sludge disposal. LNG driven ships are even more expensive but could become competitive in the future. To date, there are no other competitive choices. Concluding, predictable and significant changes expected in ship propulsion may indicate that use of HFO will fade out in the long run.

Despite all the column inches dedicated to LNG and exhaust gas cleaning, IBIA believes the overwhelming majority of ship operators will use oil-based fuels to comply in 2020. The biggest question is how prepared operators are to use as yet largely unfamiliar low sulphur fuel blends, not just distillates. We are too close to the implementation date for investments in other solutions to reach more than maybe 5% of global fuel consumption during 2020, of which LNG-fuelled ships (excluding LNG carriers using boil-off gas) may account for up to 1%. Scrubber uptake is slow as owners are reluctant to invest millions installing equipment which won’t give ROI until 2020, after which the economic incentive could cause uptake to grow quickly.

Lars Robert Pedersen, Deputy Secretary General, BIMCO

The reduction of sulphur limit for fuel used outside emission control areas by 1 January 2020 will likely result in a demand for compliant fuel in the order of 2-4 mill Barrels per day. This is a significant amount that needs to be supplied from refinery streams that presently serves consumers and industries in all sectors and areas of society. The reason why the demand is high stems from likely limited update of scrubbers or use of alternative fuels. As the volume of new compliant fuel by 2020 is high, ramifications in terms of impact on availability to other sectors of society are equally likely. Price for compliant fuels will be high and this may carry its own challenges to the shipping industry.

Konstantinos Darzentas, Fleet Director, V. Ships Greece Ltd

The 2020 is rapidly approaching and the ships’ operators have to decide on how to comply with the regulation of 0.5% global Sulphur limit. As per my experience, there is not only one method that is suitable for all vessels, as the best option depends on vessel’s type, size and age of the vessel, on operational patterns, on the type of fuels that are available in short and long term, and last but not least the cost of each option. Taking into consideration, our past experience with similar SECA requirements where most of the operators proceeded with the option of using LSFO, the complexity of the scrubber installation, and the statistics showing a low percentage of scrubbers installed till the year 2020, my estimation is that the use of 0.5% LSFO will be much more preferable than the installation of scrubbers or any other alternative.

The option that the ship operators will follow depends on various factors. Firstly as a long time strategy if the vessel is a new built vessel the most probable option that will be followed is the scrubber solution or the LNG solution the later one selected especially for Gas Carrier vessels. For the existing fleet the option that will be selected normally will be decided taking into account factors such as the age of the vessel, the size of the vessel, the power of the M/E and the specific trading that the vessel does. For M/E above 15MW and standard trading passing by large bunkering stations the option of scrubber is vital and effective as opposed to the small size vessels trading anywhere that probably should select the distillates and LSFO.

To scrub, to gas, or to wait, that is the Sulphur question. The answer cannot be simple but there are two factors each one of us should consider, time and space. Space in terms of the case in hand, the vessel, the area and envelope of operations , the ports she will call, will there be availability of alternatives or local requirements dictating one solution over the other. Even more importantly, time can be the decisive factor, what will the payback period be? How will drastic change impact market conditions? Can price differentials initially favor scrubbers and will the natural gas abundance eventually prevail? Uncertainty will after all become the only certainty.

Today’s economics (HFO / LSMGO price difference prediction) are in favour of scrubber installation showing quick pay-back periods even on smaller size vessels. The limited production capability of scrubber manufacturers, the long modification period and the high CAPEX will delay a widespread implementation in the existing vessels, especially those above 10 years old. It is therefore anticipated that the vast majority of the vessels will operate on LSMGO at the dawn of 2020. For Newbuilding vessels scrubber installation appears to be a must, especially if HFO supply can be ensured through contracts with physical suppliers. LNG adoption will be boosted by the expansion of LNG bunker network and the further development / improvement of storage systems.

George Teriakidis, Regional Business Development Manager, DNV GL

We believe that initially the vast majority of ships will choose distillates and other low sulphur fuel oil products. Uncertainty in fuel availability, prices and enforcement will limit scrubber uptake to a few thousand ships at most by 1st January 2020. The introduction of other alternative fuels and technologies is certainly increasing, but will mainly be limited to newbuilds for the next few years, which means that the impact in number of ships and displaced fuel in 2020 will be relatively small. That being said, going forward alternative fuels are very relevant, and owners who do not undertake a thorough evaluation of this option, especially for newbuilds, run the risk of being left behind.